Nene delivers budget under siege

November02, 2015

The disconnect between state and society became painfully apparent as Finance Minister Nhlanhla Nene delivered his well-considered 15-page medium-term budget speech to a Parliament of suits on Wednesday. Meanwhile, outside the building, stun grenades were launched into a crowd of students protesting against unaffordable university fees.

The finance minister’s medium-term budget policy statement speech – destined to go down as one of the most irrelevant in history – shied away from the university uprisings against inflation-busting fees sweeping across the country, but a confrontation could not be avoided as students pushed through the gates of Parliament and clashed with police.

Although the minister made clear that tough times were in store for all, the only acknowledgement of the extraordinary situation in the parliamentary precinct was when he said the past week had served to remind the government of the expansion of further education and university opportunities.

The minister did note that the disruption of learning was not constructive and, departing from his written speech, said neither was the disruption of Parliament. “But Minister [Blade] Nzimande has rightly indicated the need to strengthen student financing further, and to find solutions where current arrangements are inadequate.”

Indeed, on Tuesday Nzimande announced a 6% cap on university fee hikes after protest action took place on a number of campuses in response to proposed fee increases of as much as 11%. But it appeared to be too little, too late for the students, who adjusted their mantra of “Fees mustfall” to “Blade must fall” as the minister attempted to address demonstrators outside the National Assembly on Wednesday.

The storming of Parliament is a dramatic illustration of the pressures on the national treasury, not just by students and educational institutions but also by opposition parties, public servants and the poor and marginalised, said Nic Borain a political consult to BNP Paribas Securities SA.

“It’s not a bad budget, it’s completely overwhelmed by what is happening around it. It’s doubtful people will look at the numbers seriously, or at least initially,” Borain said.

Although the carefully crafted policy statement seemed preoccupied with allaying the fears of ratings agencies and investors, some of the treasury’s observations were at the heart of the real issues that called from outside the parliamentary walls.

Growth is low, and it’s not going to get better any time soon. Growth is expected to come in at 1.5% this year and at 1.7% next year. This is before knowing the gross domestic product (GDP) figures for the third quarter of the year, which – if they come in negative – will see the South African economy technically experiencing a recession, which is two consecutive quarters of negative growth.

Although South Africa and other developing nations are victims of global circumstances such as rising interest rates, investment outflows and low commodity prices, a few own goals have been scored domestically.

Electricity supply constraints have affected development and are estimated to shave off a percentage point of economic growth each year. Inflation is also expected to rebound in 2016, meaning that both educational institutions and students are taking strain.

In 2008, as the first impacts of the global financial crisis were felt, student protests over tuition fees disrupted SA campuses and saw clashes with police. Borain says that, generally, radicalism and high levels of mobilisation occur in times of the most economic stress and that this is when “green” and communist parties tend to grow.

“I’m not suggesting this is fringe politics. The ANC remains a popular party,” said Borain. “But I can imagine they are very worried.”

Those leading the uprising are also what might be termed as middle class, although this could mean a combined household income of R12 000 a month. Such households would struggle to pay university fees. “They are aspirants, desperate to harvest the fruits of liberation or transformation,” Borain said.

Despite fiscal constraints, perceived corruption and wastage may be at the core of the demands.

The quality of spending and not just the quantity also came into focus in the minister’s statement, with the government intensifying its efforts to improve value received for money spent.

“There does appear to me to be a very widespread feeling the money is not reaching the intended recipients, those who need it most, and that just too much is leaking out due to mismanagement,” said Borain.

Within the space of a day or two, a student protest that was multiparty has turned into an anti-ANC protest and anger is now being directed at the government, he said. “There is a growing sense of outrage and I think increasingly there is certainly the intelligentsia to a degree, or urban professionals, who are not buying the story that there is no money,” said Borain. “There is money. I think everyone knows it. It is just being squandered.”

According to the treasury’s policy statement, South Africa’s priorities are to reduce high levels of unemployment, poverty and inequality.

“If you go back to all of Trevor Manuel’s budget speeches or Pravin Gordhan’s, these issues of poverty, inequality and unemployment mentioned have always been core to what they were saying,” said Chris Malikane, an associate professor in economics at the University of the Witwatersrand and a member of the National Planning Commission.

“For a long time these budgets have not been reflective of the demands of society as a whole … the budget this year and last year and the year before that have all been the same.”

This is despite the fact that the underlying causes of service delivery protests have worsed since 2002. Malikane said the framework of the budget was established in 1993 and has not changed since. “It’s a template; it is not responsive to the plight of people at all.”

He suggested that a real developmental state would invest more in social services.

As the groundswell from universities begins, relationships with labour appear to have improved, with amicable agreements reached in a number of sectors and protracted strike action avoided. In the first half of the year 176?000 workdays were lost to industrial action, down from 7.5-million in the first half of 2014.

That the uprising is emanating from universities this time around is telling, Malikane said. “A university is a microcosm of what is happening in the country. The heads of schools are like the president … and what the students are experiencing on campus includes racism, sexism and marginalisation. It is all reflective of what is happening in society as a whole,” he said. “It [the protest action] tells us that the factions of the intelligentsia are beginning to awake to the structural problems that are affecting the country.”

As the National Development Plan points out, improving education and training is key to reducing poverty, inequality and unemployment. But “our education and training capacity is not enough”, Nene said in his speech. “We have to invest in quality improvements and meet new skills requirements.”

As the policy statement notes, the government’s ambitious policy agenda will require slightly increasing the debt-to-GDP ratio over the medium term instead of reducing it, as was promised. It will also require additional taxes. The policy agenda does not seek to dramatically increase the government subsidy for higher education, of which university transfers are R33-billion for the financial year, dwarfed by the basic education allocation of R191-billion. Although the budget for higher education is projected to grow by 6.3% over the medium term, it is just 2.4% of overall expenditure.

The public sector wage settlement has already seen the government digging into emergency reserves and shifting spending. It will have to be innovative if it is to come up with the money to satisfy everyone’s demands.

In the medium-term policy statement, the government suggested that a funding solution may be found in private sector funding for key areas such as tertiary education.

There is a strong hint, the Democratic Alliance said, that revenue-raising measures can be expected such as an increase in value added tax to fund future expenditure.